The Market Impact of Higher Jumbo Mortgage Rates
The New York Times reported a trend with potentially alarming repurcussions for the townhouse market (and some of the pricier condos coming to market) in Brooklyn: Upward pressure on interest rates for jumbo loans. The article leads with the example of one guy who was quoted 8 percent one day and then three days later,…
The New York Times reported a trend with potentially alarming repurcussions for the townhouse market (and some of the pricier condos coming to market) in Brooklyn: Upward pressure on interest rates for jumbo loans. The article leads with the example of one guy who was quoted 8 percent one day and then three days later, when he went back to lock in the rate, the number had leapt to 13 percent! This is atypical, to be sure, but the spread between regular mortgages and jumbo mortgages has expanded from about 25 basis points a few weeks ago to about 70 basis points now. (According to Bankrate, most lenders are quoting between 7 and 8 percent for zero-point 30-year jumbo loans.) What’s going on? Regardless of the creditworthiness of the borrower, it appears that the implosion of the subprime market has reduced the market’s appetite for even higher-credit mortgages on amounts above the $417,000 level that Fannie Mae and Freddie Mac are restricted to buying. We’ve got a couple of questions: 1) Are there any readers who’ve tried to get a jumbo loan in the past week or two? 2) If this persists for more than a week or two, what does it mean for the Brooklyn market?
In a Credit Crisis, Large Mortgages Grow Costly [NY Times]
The game is over folks. What’s happing today will be considered a cakewalk. Double digit rates are coming back and you will pay for your folly. 600 k for a 2 bedroom condo give me a break!
I have a credit score of around 800 and was quoted 6.25% from Wells Fargo for 600k in March. Now I am waiting for the CO before I can lock in. My mortage broker told me that that Wells Fargo is off the charts at above 8%. Some other New York Banks like Apple are still in the high 6’s but even the mortgage broker is freaked out by what is going on. At this point I am trying to stall the construction in hopes that rates go back down.
I’d think for this fall you’ll see a slight drop in prices in brownstones/pre-war co-ops. (no comment on new condos…). maybe prices will be flat for a while. They still ain’t making any more of them. I’d think upper-end co-ops won’t really be affected, as you need 25% down anyway plus 4x income, plus cash reserves.
What I hope happens as a homeowner is that the mortgage market shakes out the unqualified borrowers, mostly for the borrowers’ sake. I know that people have to take personal responsibility for their finances but honestly, how many of us could say that we were financially sophisticated when we bought our first place?
Still, the response to this mess could be an aversion to investing real estate. If that happens…
I don’t agree. MOST people view buying real estate as a means to put a roof over their families. That will not change. Especially in NYC where rents are atronomical. People will WANT to buy, whether they can afford to or not. THAT’S part of the reason why we are in this minor mess to begin with…people really want to own property. It’s an innate human thing in most of us, I’d say.
I think they fact that people have 50%+ equity in their homes makes this market more stable, not vulnerable. Maybe the market will slow down, but it won’t have the panic sellers/foreclosures that make a market tank (cf, Las Vegas, So Florida)
This could slow down the market in Brooklyn a bit, but I would be surprised if there were a major market correction. However, this is a time when location will help ensure your (Brooklyn) property value. NYC (Manhattan) real estate prices are kept so consistently high by foreign investors, and I don’t see this changing until the dollar is strong again.
There are probably quite a few buyers who will sell their properties and use their earned equity for a generous down payment on a Brooklyn brownstone or high-end condo / co-op, but maybe people will be less willing to take a risk on a neighborhood?
my 7yr I/O ARM is 4.15% and we still have 6 years at that rate (and then it goes up 1% a year for 3 years).
“We’re not close to first time buyers and our mortgage is 400k. We just roll equity from one place to the other. ”
Thats the vulnerability the nyc market has. With a spike downwards in valuations, the transaction rate will dry up because a lot of people have incomes to match their 500k mortgages but not to match their 1m places. Without being able to roll a 250k valuation gift over two years into the new larger digs, people will just sit and wait rather than trade up. Prices will be depressed for a while until incomes catch up.
Nationally, especially in markets buoyed by speculators — Florida, Vegas, Phoenis, Southern California — this will cause a double-digit decline in housing prices.
At a local level this will simply temper increases or create a flat market in Manhattan and prime Brooklyn. Bear in mind, Brooklyn brownstones remain a strong value relative to Manhattan real estate and unless this credit crash impacts deal flow, Wall St. bonuses and law firm compensation should remain high keeping the high end of the market intact.
Additionally, this should have little effect on the co-op market, which already has high standards, but the condo market (which one could make a case that there’s already too much supply) is likely to see a decline (5-10%) in price.
Still, the response to this mess could be an aversion to investing real estate. If that happens…